A capital lease is a contract entitling a corporate entity to the temporary use of an asset. The lease of the asset has the economic characteristics of asset ownership for accounting purposes. First Capital Bank’s capital lease requires our client to book assets and liabilities associated with the lease if the rental contract meets specific requirements.
Conditions for Capital Leases
To qualify as a capital lease, a lease contract must satisfy any of the four criteria.
The life of the lease must be 75% or greater for the asset’s useful life.
The lease must contain a bargain purchase option for a price less than the market value of an asset.
The lessee must gain ownership at the end of the lease period.
The present value of lease payments must be greater than 90% of the asset’s market value.